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Poizner sues to further Iran divestiture

By Josh Richman
Tuesday, November 9th, 2010 at 12:04 pm in Iran, Steve Poizner.

California Insurance Commissioner Steve Poizner says he’s suing to challenge last month’s finding by the state’s administrative regulation watchdog that his efforts to stop insurers from investing in Iran amount to an “underground regulation.”

The Los Angeles Superior Court lawsuit – in which Poizner is represented by state Attorney General (and Governor-elect) Jerry Brown – contests the California Office of Administrative Law determination – which had been sought by insurance companies – and seeks to clarify Poizner’s authority to address “insurer support of the Iranian terror regime and the solvency of insurer investment portfolios,” his office said in a news release.

“I intend to ensure that any insurance company licensed in California is not doing business, in any way, with the Iranian regime,” Poizner said in the release. “Insurance premium dollars that Californians pay should not end up supporting a regime that has shown time and time again its disregard for the concerns of the global community. The consensus is clear, as seen in the sanctions that the United Nations, the European Union, the U.S. government, and the California Legislature have imposed over the past two years — responsible businesses should not be doing business with Iran. Since companies doing business with Iran face financial risk, I have the authority to protect insurer portfolios from investments in those companies.”

Poizner’s release said recent statements by U.S. Defense Secretary Robert Gates indicate divestment actions like this and other sanctions are “posing significant hurdles to the country’s ability to develop nuclear weapons.”

Poizner in June 2009 launched an initiative to identify Iran-related investments in the portfolios of insurers doing business in California, asking that the 1,300 insurers licensed here identify all investments in companies doing business with the Iranian nuclear, defense, and energy sectors. His department identified 50 companies, including the well-known corporations Royal Dutch Shell and Siemens, with ongoing business activities in Iran. This spring, Poizner requested a “moratorium,” calling on insurers not to make any new investments in companies on his list; more than 1,000 signed onto this moratorium.

Poizner’s release says financial reports that insurers file quarterly with his department show his initiative produced change: The insurance industry last year had invested nearly $1 billion in companies on his list, but that figure plummeted to $32 million in new investments during 2010’s second quarter of 2010, the first quarter in which the moratorium was in effect. The value of existing insurer investments in companies on the list declined by $337 million dollars in 2010, indicating that some insurers are moving beyond the moratorium and actually divesting Iran-related assets that had been acquired over the previous two decades.

“These numbers tell a promising story, both in the reduced involvement of California insurers in Iranian business activities and by demonstrating that insurers can drop companies on the Department’s list from their investment portfolios without adversely affecting their investment returns,” Poizner said.

UPDATE @ 4:14 P.M.: The Association of California Life and Health Insurance Companies, Association of California Insurance Companies, Personal Insurance Federation of California, American Insurance Association and American Council of Life Insurers just issued this joint statement:

“Our associations asked the Office of Administrative Law (OAL) to review the Department of Insurance’s directives on insurer investments because we believe that the department, just like all other state agencies, must obey the law.

“When the Department of Insurance adopts regulations, it must follow the requirements that the Legislature established in the Administrative Procedure Act (APA). The OAL determined last month that the department should have followed the APA when the department issued its directives. We believe the OAL is correct.

“Our associations do not support or defend any insurer that makes investments that violate state or federal law, which prohibit investments in Iran and other terrorist regimes. We asked the OAL for a determination simply to resolve the issue of the Department of Insurance’s compliance with the APA.”

UPDATE @ 1:50 P.M. WEDNESDAY: OAL Director Susan Lapsley is not amused, according to a statement she issued in response to Poizner’s announcement. Read all about it, after the jump…

“The Commissioner is required to follow the process established by law. The Administrative Procedure Act (APA) protects the public by requiring state agencies to publish notice of a rulemaking and follow other procedural steps before new rules can become enforceable. No state agency, including the Department of Insurance, is exempt from the APA’s requirements absent an express statutory exemption.

“Our office is authorized by law to scrutinize rules that have been challenged as ‘underground regulations’ (regulations and rules that state agencies issue or use that have not been properly adopted pursuant to the APA). The procedural steps established by the APA are designed to give the public a meaningful opportunity to participate in the making of the rules that will govern them. The rules adopted using the APA process must then be submitted to OAL for its review and approval in accordance with all governing law. No matter what agency is involved and no matter what praiseworthy objective the agency has in mind, the APA requires that the proper process be utilized. The Commissioner did not follow that required process but rather simply imposed new rules unilaterally without any public input or comment. This is exactly the type of action the APA is designed to prevent.

“Given the enduring fiscal crisis facing the state of California, it is regrettable to have to devote any public resources toward resolving this matter. Our mission of regulatory oversight makes it our responsibility and statutory obligation to issue an opinion if we believe an agency is acting outside the law using underground regulations. We stand by our opinion.”

Lapsley also wrote to the state Justice Department, noting her agency is small and its attorneys inexperienced in litigation, meaning expensive outside counsel will be needed. She invited Brown and Poizner to informally point out where the October opinion was not legally sound; if they can make their case, the OAL will reconsider.

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